Australia's sugar cane crushing industry is set to be dominated by foreigners after Thailand's Mitr Phol Sugar Corp Ltd on Wednesday launched a long awaited take-over offer for one the country's last remaining independent cane millers.

Australia's MSF Sugar Ltd , previously called Maryborough Sugar Factory Ltd, said it had received a takeover approach from its biggest shareholder valuing the company A$313 million ($324 million).

Mitr Phol is offering A$4.45 a share, a 31 percent premium to MSF's last trading price. It already owns 22 percent of MSF, having built on an initial 19.9 percent stake acquired just over a year ago at A$4.00 a share.

Shares in MSF, which made a net loss of A$6.15 million in the half year to June 30, surged to the A$4.45 bid price, a record high reflecting hopes of a rival offer.

Foreign companies view exposure to Australia's sugar industry as providing an opportunity to benefit from rising consumption of the sweetener in fast growing Asian economies. Australia is the world's third-largest raw sugar exporter.

"The strong demand for Australian milling assets is due to the large export market and the near proximity to key Asian countries that are concerned about food security," said Simon Dumaresq, an analyst with Melbourne-based E.L. & C. Baillieu Stockbroking Ltd.

TAKEOVER TARGETS

Mitr Phol's offer is conditional on 50.1 percent acceptance and approval from Australia's Foreign Investment Review Board.

MSF has around 4.7 million tonnes of cane crushing capacity, and 550,000 tonnes of sugar production capacity or about 13 percent of Australia's sugar capacity, while Mitr Phol is a major player in its home country of Thailand as well as China.

Australian sugar producers and crushers have become a popular target for global consolidation, with Singapore's Wilmar International Ltd last year paying A$1.75 billion for the country's biggest sugar miller, Sucrogen.

Mitr Phol's offer follows Australian-listed Tully Sugar Ltd being snapped up by China's state-owned food giant COFCO Co Ltd. The Chinese group mid-year paid A$136 million for Tully, based in the north-eastern tropical state of Queensland, the source of more than 90 percent of Australia's sugar.

However, Australian cane crushing margins have been squeezed by two consecutive years of poor cane harvests because of rain and cyclonic weather damaging crops and slowing harvesting.

The crush for the June-to-May 2010/11 marketing year is drawing to a close and is expected to yield 3.8 million tonnes of raw sugar of which around 2.6 million tonnes will be exported, according to ANZ Banking Group agricultural commodities analysts.

The latest crush is only slightly up on the previous year and compared with more than 4.5 million tonnes of raw sugar produced in a normal season.

Tully is now in a tussle to win ownership of the Proserpine Sugar, this week raising its offer for the cash-strapped milling co-operative to A$122 million, to counter a A$115 million offer from Sucrogen.

Apart from MSF and Proserpine, the last remaining locally owned sugar milling company of size in Australia is Mackay Sugar Ltd, which produces around 800,000 tonnes of sugar annually for domestic and export markets.

Tully operates one of the bigger mills in north Queensland and now, under COFCO's ownership, intent of gaining control ownership of a network of mills in the sugarcane growing region.

E.L. & C. Baillieu's Dumaresq said COFCO might also launch a counterbid for MSF.

"There are large potential synergies to be had from combining Tully's and MSF's northern mills which are connected by existing rail networks," said Dumaresq.

Foreign interest in Australia's sugar industry also extends to commodities trading giants such as U.S.-based Bunge Ltd, , which also attempted to gain control of Tully.

Dumaresq said a number of foreign companies had looked at MSF and could also be well-placed to make an on offer.

These included commodity trading houses Cargill Inc , Louis Dreyfus, Japanese trading groups, Mitsui , Itochu , Mitsubishi Corp and China's Bright Food Group.

While Mitr Phol was offering an attractive premium, Dumaresq said this would not prevent counterbids from firms that saw ownership of Australian sugar assets as an opportunity to gain exposure to Asian markets.

"The A$4.45 (a share) offer may not be justified on an earnings valuation but it could be from a strategic point of view," said Dumaresq.

source: reuters

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